I am constantly on the lookout for opportunities in the market and when I have the capital I try to pull the trigger on stocks that I think have long term potential to be valuable assets over the long term. AT&T is one of those companies that I particularly like as it the largest telecommunication companies in the world and with how people are glued to their little screens these days I see a very large moat around the business.
For those not in the know AT&T is a multinational telephone conglomerate and started in 1882 as the Southwestern Bell Telephone Company. It is highly dedicated to returning value to it’s shareholders and has increased it’s dividend each year it has been a publicly traded company. This amounts to 32 years of dividend increases since 1984 with another one on the way in 2017. Currently their payout is at roughly 70% of their free cash flow (operating cash flow less capital expenditures) which is normal given that AT&T is historically at 71% over the last five years. AT&T currently pays a dividend of $1.96 a year or $0.49 a quarter. I expect another token increase of $0.01 per quarter to make the dividend hit $2.00/year or $0.50 a quarter going forward.
So why AT&T now? The company is a solid dividend aristocrat, companies that have raised their dividends for 25 years or more consecutively, and is a defensive play in today’s market for me. While I am worried that the market may correct in the near to mid term future, I’m not willing to sit out when I think that there is some value to be had and AT&T fit the bill for me. AT&T to me is a very cyclical stock and I felt we were near the bottom of that cycle. To understand this is the last year of AT&T:
As you can see the stock bounces up and down quite a bit. So being that Tuesday it $0.45 off it’s recent 52 week trading low I pulled the trigger. I expected the stock to have positive earnings news, but even if it did not I would not have been disappointed if it dropped a dollar on bad earnings because I consider this a long term core holding for me.
There is a lot of interesting upside to be had with the AT&T and Time Warner deal which will bring a ton of content that could add a nice boost to the bottom line. In the future content will continue to be king and having a large stable of potentially exclusive content could be a nice boon for AT&T. Think HBO and the DC universe. HBO arguably being the most valuable, but if they can get the DC Universe up and running it can be another cash cow. Think of the success of Wonder Woman which is the current 2017 highest grossing super hero movie. Something that DC has been unable to steal until this point from Marvel.
Finally they are doing great things in Mexico and have been growing their brand aggressively and increased their subscribers by 3.3 million or 28% in 2016 from their 2015 numbers. While this may not impact margins quickly, it’s nice to see that they are making inroads in a growth market and had a 21% increase in total revenue in this market year over year. AT&T only has an 8.5% market share (9.2 million subscribers), but with it growing and their strong network, it can eventually become an important market for them outside the US.
Overall I think there is a lot to like from a long term perspective with AT&T, they are a bell weather for dividend growth and are safer in this market than more aggressive stocks. It’s dividend growth is a large factor for me and the fact I picked it up at $36.259 on Tuesday, which was $0.449 cents above it’s most recent low. The chart is from today so I’ve seen a nice bounce since earnings. I purchased 104 shares on 7/25 which added $203.84 in annual income, unfortunately I purchased past the ex-dividend date so I will only see $50.96 in the fourth quarter of 2017. At purchase the stock had a nice yield of 5.4% which is rare in a quality company in this market. Since purchase the stock has bounced up $3.021 as of writing of the article so it appears the market believes that AT&T was undervalued and is bouncing it back up into the range once again.
What do you think of this purchase? Any other stocks currently on your radar?